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Brazil Moves Quickly to Counter European Chill: The Ticker

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By Mayara Vilas Boas

As December began, and with it the Christmas shopping season, Brazilian markets reacted joyously after the government announced a series of tax reductions intended to spur growth and steel the country's economy as the European sovereign-debt crisis intensifies.

The measures may offer a preview of fiscal stimulus in emerging markets as fears rise of recession in Europe -- and slowing global growth as a result.

Brazil slashed taxes on consumer credit, appliances, retail products, certain foods and construction. And the tax rate charged on foreign-stock purchases was reduced from 2 percent to 0 percent.

Bovespa, the Brazilian Stock Exchange, rose 2.23 percent on Dec. 1 in reaction, with foreign institutions including Morgan Stanley, Credit Suisse, Deutsche Bank and HSBC among the largest buyers of shares, Bloomberg News reported.

Brazil is aiming for a 5 percent growth rate in 2012 and hoping to prevent its manufacturing sector from being undermined by the turmoil elsewhere. In turn, the government is trying to stimulate consumption in sectors where there's strong production. The stock market is likely to benefit from the tax cuts as investors shift money from fixed income to equities.

The measures followed the Brazilian central bank's unanimous decision on Nov. 30 to cut the benchmark Selic rate by half a percentage point, to 11 percent from 11.5 percent.

Other BRIC countries (Russia, India and China) are also feeling the brunt. On Nov. 30, China's central bank cut bank reserve ratios by 0.5 percent to keep manufacturing growing. In India, the government has already increased spending levels close to deficit limits to counter low growth. Russia implemented its own expansionary package: increased spending, freer lending to cash-strapped banks, and new aid to its closest neighbors.

The BRICS are faced with low growth, in addition to worrisome inflation, high levels of consumer debt and unemployment. They may not be able to pick up the slack again if another global financial crisis hits.

(Mayara Vilas Boas is on the staff of Bloomberg View.)

 

-0- Dec/02/2011 23:28 GMT

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